Recent headlines have raised persistent questions about private credit. Declining distribution yields, a handful of high-profile defaults outside the core of the asset class, and concerns around the sector’s exposure to potentially vulnerable software borrowers have fueled a steady stream of scrutiny. More recently, rising redemption requests in some evergreen private credit vehicles—non-traded business development companies (BDCs) and interval funds—have symbolized and further amplified investor unease. The preponderance of data we track continues to demonstrate the private credit market is fundamentally sound. In our view, the more relevant issue for investors to consider is whether competitive dynamics have reshaped risk-reward trade-offs across different segments of the market.
At moments like this, it helps to return to first principles. Private credit exists because it serves the needs of multiple parties: Borrowers that prefer working with flexible, relationship-based lenders who can mitigate the execution uncertainty of public markets; an aging investor base increasingly seeking income solutions; and policymakers who aim to improve the resilience of credit creation and reduce the risk to financial stability posed by highly leveraged depository institutions. The asset class has expanded rapidly because it is well-aligned with the objectives of each of these constituencies. Today’s challenges reflect some investors questioning whether they are still receiving their end of the bargain. Fundamentally, am I being adequately compensated for the risks I am taking? This is an entirely reasonable question, and one faced by every asset class at various points in time.
Where the current deliberations fall short, in our view, is the emphasis on structural or systemic risk. As we discuss at length in a recent paper and update in the following section, there is little evidence that private credit today exhibits the hallmarks of a speculative bubble. Borrower fundamentals are broadly healthy, defaults are contained and the asset class’s growth reflects a shift in who originates credit rather than how much credit is originated.
The critical distinction lies in how competition has reshaped different segments of the market. As capital has crowded into the largest strategies, competitive dynamics have caused a divergence in the value proposition private credit presents. This is particularly apparent when comparing the most competitive large-cap lending segment to the less crowded core and lower middle markets. This report focuses on that underexplored dimension of the private credit conversation. Ultimately, we believe investors are best served by approaching private credit as they would any other risk asset: Identifying cyclical signal markers, assessing whether expected performance is appropriate for the risk being taken and—most importantly—determining where risk/reward is most compelling.
Market fundamentals: Still supportive
The starting point for any adjudication on the health of credit is the state of the economy. To that end, the macro backdrop remains supportive, if more uncertain than normal. Real GDP grew at a healthy 2.1% pace in 2025, while nominal growth—more relevant for debt service—has run at roughly 4.5%–6% since the start of 2024.1 The U.S. middle market, home to most private credit borrowers, has harnessed that growth, posting average revenue growth of 11.7% in 2025 versus 8.3% for the S&P 500.2
Healthy nominal growth has supported revenues, while a budding productivity upswing has improved margins. Since 2021, U.S. corporate operating margins have averaged 21.9%, well above historical averages.1 Furthermore, as firms continue integrating AI and other innovations, it is conceivable this productivity-driven margin enhancement could expand. Tariff policy and geopolitical uncertainty have no doubt made the operating environment more complex—but especially for domestically focused firms less exposed to these risks, the results continue to suggest it is an excellent time to be a U.S. business.
These macro conditions help explain why borrowers in leveraged finance held up as well as they did through the Fed’s recent (historic) hiking cycle. While certain highly levered 2021–2022 vintage loans remain under pressure, 175bps of easing since September 2024 has provided meaningful relief to cash-strapped borrowers, improving the debt service coverage of both new and existing loans.
Healthier credit metrics have predictably led to a stable default picture—not just in private credit, but in adjacent markets such as high yield bonds, broadly syndicated loans (BSLs) and bank lending. If distress were truly surging within private credit, one would expect at least some echo of that to appear in parallel competing markets. Instead, default rates for both public and private credit have been stable or declining over the past year. Banks tell a similar story—not only are commercial & industrial (C&I) delinquencies (1.37%) and charge-offs (0.55%) only modestly above historical averages, but their loans to private lenders (the subject of increased handwringing) show no signs of stress.3
Leveraged credit default rates
1 year ago vs. today
Many view private credit’s rapid growth as a risk unto itself. In our view, the more important question is not how much the market has grown, but the source of that growth. Concern would arise if private credit were expanding the overall indebtedness of the U.S. private sector, implying lenders were originating loans that would not otherwise exist. The chart below suggests the opposite. Normalized to nominal GDP, the relative size of the broader leveraged credit market has actually declined during private credit’s rise. In other words, private credit’s growth has reflected a shift in market share, not the growth of market size.
Leveraged credit market size by subsegment
As a % of U.S. nominal GDP
In our view, the claim that private credit is on the verge of a significant credit event is unsubstantiated. While certain economic sectors (housing, transportation, low-end consumer) face challenges, fundamentals look healthy in the aggregate. That allows us to move to the more important discussion: The growing divide between segments of the market.
Crowding and competition have left the market bifurcated
The fundamentals underpinning the private credit market suggest today’s challenges are a function of sentiment, not credit performance. That does not mean the concerns have no basis in reality. In our view, the current debate reflects a misdiagnosis of where risks lie within the market. Much of the scrutiny directed at private credit today stems from trends that have developed in specific segments of the market—largely the result of intensifying competition as capital has flowed disproportionately to the industry’s largest managers.
From the start of 2024 through the first half of 2025, just 12 funds accounted for more than 40% of global private credit closed-end fundraising, with concentration even more pronounced in evergreen vehicles. These lenders compete intensely for deals not only with each other, but also with the BSL market. The result has been tighter spreads, higher leverage and looser documentation in this segment of the market.4
Importantly, these dynamics are not representative of private credit as a whole. “Jumbo” private loans—those exceeding $1 billion—accounted for only 20% of total deal volume over the past year, yet a growing plurality of capital is directed toward managers focused on this segment. The result is a widening divergence in the competitive dynamics and corresponding value across private credit, particularly between the most crowded large-cap segment and the less competitive middle market.5
In our view, that divergence offers an important insight for investors: Many of the concerns currently surrounding private credit can be addressed not by avoiding the asset class, but by being more selective within it. Below we examine five areas where competitive pressure has been most evident—what we call ‘The Five P’s—and how these conditions differ by market segment.
Private credit’s pressure points: The 5 P’s
Turn back the clock: Conclusion and considerations
As shown, many of the concerns surrounding private credit stem from dynamics driven by rising competition among the industry’s largest managers, reshaping the market and accentuating the fault lines between its segments. In fact, we see this moment as an opportunity to turn back the clock and refocus on private credit’s roots: Lending to segments where capital and expertise add real value.
That said, this is not a simple trade-off. While manager scale is often associated with the competitive pressures described above, it can also bring meaningful advantages: Better financing structures, institutional stability and—most importantly—the resources required to manage and maximize the value of underperforming assets. For investors moving down-market, this creates an important reality. Dispersion in manager capability is far wider in the lower and core middle market than in large-cap lending, where beta dominates and differentiation disappears. Successfully navigating these more specialized segments requires managers with the scale, sourcing networks and underwriting discipline to identify opportunities and work through challenges when they inevitably arise—giving managers the opportunity to turn excess spreads into true alpha.
Private credit has added substantial value to portfolios over time, producing 250bps–300bps of outperformance per year over traded credit on an unlevered, net-of-fee basis.6 Income generation has fallen from historically elevated levels, but a nominal yield of 9% remains a compelling starting point. Credit metrics point to broad health with isolated pockets of stress, not widespread degradation. The question is not whether private credit still works, but rather where it retains its original thesis. Our view is that private credit adds the most value to investors in the segments where it adds the most value to borrowers: The lower and core middle market, where competition is lower, capital is less abundant, protections are stronger, and spreads are wider.
Views on private credit redemptions
In recent months, headlines around private credit have intensified as some investors in evergreen vehicles—non-traded BDCs and interval funds—have sought liquidity. These funds explicitly set redemption limits, typically 5% of capital per quarter. When requests exceed that threshold, redemptions are prorated. The resulting headlines have prompted renewed debate about the asset class. Four considerations are worth keeping in mind:
- Liquidity structure is sound risk management. Private loans are bespoke instruments that typically lack a deep secondary market. Sound risk management matches the liquidity profile of investor capital with that of the assets being financed, minimizing risk of a destabilizing run.
- The illiquidity is the premium. Borrowers pay higher spreads to private lenders in exchange for certainty, speed of execution and flexibility. The ability for lenders to guarantee a swift loan closing, or to include the option for a delayed draw term loan (DDTL), is contingent on stable capital. If capital could disappear at any time, the premium would disappear with it.
- Unlimited liquidity would harm investors. Unlimited redemptions would force managers to sell illiquid assets into thin markets. Even healthy assets could take losses, ultimately reducing returns for investors who committed capital with the expectation that liquidity limits would protect against such outcomes.
- Private credit generates its own liquidity. Unlike many assets, private credit portfolios naturally produce cash through amortization, repayments and regular interest income. Combined with new capital inflows, dividend reinvestment and financing facilities, this internal cash generation positions private credit evergreen vehicles well to meet redemption requests over time.